Rabia Bai vs The Custodian-General Of Evacuee

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 12 January, 1961

Coram: A.K. Sarkar, J.R. Mudholkar, K. Subba Rao, K.N. Wanchoo, P.B. Gajendragadkar

In this matter, the Supreme Court of India heard an appeal filed by special leave against the order issued by the Custodian‑General of Evacuee Property, New Delhi, which had been affirmed in a revision petition. The revision petition upheld the decisions of subordinate authorities that had dismissed the appellant’s request for confirmation of a sale transaction, invoking section 40(4)(a) of the Administration of Evacuee Property Act, Thirty‑First of 1950. The appellant, identified as Rabia Bai, is an Indian citizen residing at Grange, Yercaud, in the Salem District. In the year 1949 she learned that premises numbered 20, situated on Godown Street in the General Treasury area of Madras, were being offered for sale. Wanting to acquire immovable property, she arranged for the purchase to be effected through her husband.

The property in question was owned by a man named Mohamad Gani Jan Mohamad, who had migrated to Pakistan in 1947 and established his residence there. Prior to his departure, Mohamad Gani Jan Mohamad executed a power of attorney in favor of his nephew, Ahmed Abdul Gani. The nephew travelled to Madras in April 1949 and began negotiations with the husband of the appellant. As a result of those negotiations, a written agreement was concluded on 29 April 1949 whereby the appellant’s husband agreed to purchase the premises for a sum of two lakh forty thousand rupees (Rs 2,40,000). An immediate payment of one lakh fifty thousand rupees (Rs 1,50,000) was made in cash and by bank drafts, representing a substantial portion of the purchase price.

Following the agreement, the sale deed was prepared, or “engrossed,” and dispatched to Karachi for the vendor’s signature. Once the deed was returned duly executed, it was presented to the Collector’s Office in Madras where it was stamped on 27 June 1949. Prior to registration, an income‑tax clearance certificate was required; after the certificate was obtained, the deed was submitted for registration and subsequently entered the official register on 11 August 1949. The remaining balance of thirty thousand rupees (Rs 30,000) was paid directly to the registering officer, who was then in possession of a power of attorney from the vendor, identified as Mr M. H. Ganni. Through these steps, the appellant succeeded in acquiring legal title to the property that is the subject of the present dispute. She later applied to the Custodian‑General for confirmation of the sale deed, but that application was rejected, prompting the present appeal.

Before examining the specific procedural facts of the confirmation application, the Court considered it necessary to outline briefly the historical context of the application of evacuee legislation within the State of Madras. Within two weeks after the registration of the sale deed in favour of the appellant, Ordinance No. XII of 1949, which had originally been promulgated on 13 June 1949, was extended to the Madras jurisdiction on 23 August 1949. Section 25(1) of that Ordinance introduced restrictions on transfers of any right or interest in property made by or on behalf of evacuees. In substance, the provision stipulated that any such transfer executed after a date specified by the Central Government, as published in the official gazette, would not be deemed effective unless it received confirmation from the Custodian. The Court noted these statutory constraints as forming the backdrop against which the appellant’s request for confirmation was adjudicated.

In the operative provisions concerning evacuees, Section 25(1) of Ordinance No. XII of 1949 stipulated that any transfer of a right or interest in property made by an evacuee or on behalf of an evacuee after a date to be specified by the Central Government for each Province, and published in the official Gazette, would not become effective unless the Custodian gave a confirmation. Section 25(2) required that an application for such confirmation could be filed either by the transferor, the transferee, or any person authorized by them, and that the application had to be presented to the Custodian within two months from the date on which the deed of transfer was registered or, whichever was later, within two months from the date on which the Ordinance came into force. The proviso to this subsection authorised the Custodian to accept an application that was filed after the prescribed period if the Custodian was satisfied that sufficient reasons existed for doing so, and it imposed upon the Custodian a duty to record those reasons. Section 25(3) directed the Custodian to conduct a summary enquiry into the application in the manner prescribed by the Ordinance and gave the Custodian the power to reject the application if, in his opinion, (a) the transaction was not concluded in good faith or for valuable consideration, (b) the transaction was prohibited by any law then in force, or (c) the transaction should not be confirmed for any other reason. Section 25(4) provided that, when the application was not rejected under subsection (3), the Custodian could confirm the transfer either unconditionally or subject to such terms and conditions as he deemed appropriate. Ordinance No. XII of 1949 was subsequently repealed by Ordinance No. XXVII of 1949, which came into operation on 18 October 1949. Section 38 of Ordinance No. XXVII corresponded to Section 25 of the earlier Ordinance, except for a material alteration concerning the date from which transfers would be affected. Section 38(1) declared that no transfer of any right or interest in property made in any manner after 14 August 1947 by an evacuee or on his behalf would be effective unless it received confirmation from the Custodian. In effect, whereas Section 25 left the determination of the relevant date to a notification by the Central Government for each Province, Section 38(1) fixed a uniform date—14 August 1947—for all Provinces to which the Ordinance applied. The remainder of Section 38 reproduced the provisions of Section 25 regarding the application process, the Custodian’s enquiry, and the grounds for rejection or confirmation. The Ordinance was again replaced on 17 April 1950 by Act XXXI of 1950, under Section 58 of that Act. Section 40(1) and Section 40(4) of the Act were analogous to the earlier provisions of Sections 25 and 38. A notable change introduced by Section 40(1) related to the dates that governed the transfers covered by its provisions; the transfers now covered were those made after 14 August 1947 but before 7 May 1954. The rest of the provisions concerning the Custodian’s power to hold an enquiry, to reject confirmation on the same grounds as previously, and to confirm transfers with or without conditions, remained essentially the same as in the preceding Ordinances.

In this case the Court explained that Section 40(1) of the Act applied to any transfer of property that was executed after the fourteenth day of August 1947 but before the seventh day of May 1954. The provision stipulated that such a transfer would not create any enforceable rights in favour of the parties to the transaction if, at any time after the transfer, the transferor was later determined to be an evacuee within the meaning of Section 2, or if the property owned by the transferor was declared or notified to be evacuee property under the Act, unless the transfer received confirmation from the Custodian in accordance with the procedures set out in the Act. Section 40(4) dealt specifically with an application made under sub‑section (1) for the confirmation of the transfer. The three clauses of this sub‑section—sub‑clauses (a), (b) and (c)—mirrored the corresponding provisions that were contained in Sections 25(3)(a), (b), (c) and 38(4)(a), (b), (c) of the earlier Ordinances. Consequently, the power granted to the Custodian to conduct an enquiry on a confirmation application and to refuse confirmation in certain circumstances remained unchanged. The Court further noted the legislative history: Ordinance No. XII of 1949, which had been extended to Madras on the twenty‑third day of August 1949, remained in force only until the eighteenth day of October 1949, after which Ordinance No. XXVII of 1949 replaced it. This latter Ordinance was subsequently repealed by Act XXXI of 1950 on the seventeenth day of April 1950. The appellant’s request for confirmation of her purchase was therefore examined under the relevant provisions of that 1950 Act, and the Court indicated that it would refer to those statutory provisions in the analysis that follows.

The Court recorded that on the nineteenth day of December 1949 the appellant filed an application seeking confirmation of a sale transaction in her favour. That application was contested by the tenants, who advanced several grounds arguing that the transfer should not be confirmed. On the eleventh day of January 1951 the Assistant Custodian of Evacuee Property for Madras City declared the vendor’s property to be evacuee property, holding that the vendor fell within the definition of “an evacuee” as set out in sub‑section 2(d)(ii) of the Act. This declaration was made pursuant to Section 7(1) of the Act. When the Assistant Custodian considered the appellant’s application, he did so in light of his earlier declaration that the vendor was an evacuee and that the vendor’s property was therefore evacuee property. After examining the material facts of the transaction, he concluded that confirming the transfer would not be justified. In reaching this conclusion he relied upon Section 40(4)(c) of the Act, finding that the apparent haste with which the vendor acted triggered the provisions of that clause. Consequently, the Assistant Custodian issued an order on the thirty‑first day of July 1951 refusing to confirm the transaction. Dissatisfied with this determination, the appellant lodged an appeal before the Custodian, challenging the correctness of the Assistant Custodian’s conclusion.

The appellate authority first observed that the sale in dispute was supported by valuable consideration, meaning that the appellant had paid a proper price for the property. Despite this finding, the authority continued to examine whether the transaction had been concluded in good faith. In doing so, the authority noted that the vendor had left for Pakistan in June 1947, apparently because of civil disturbances or the fear of such disturbances, and that the vendor had permanently settled in Pakistan. The authority inferred that the vendor was eager to dispose of his Indian properties so that he could convert them into cash and take the proceeds to Pakistan. To support this inference, the authority relied on a letter written by the vendor to a person named Mohideen on July 4 1949. In that letter the vendor warned that “if the matter is delayed there would be many sort of new difficulties as you know that the Government are passing new rules every day.” The authority interpreted this statement as showing that the vendor intended to sell his property as quickly as possible in order to avoid the restrictions of the evacuee laws, which he feared would soon be extended to Madras. On the basis of this finding the appellate authority concluded that the transaction had not been entered into in good faith, and therefore could not be confirmed under section 40(4)(a) of the Act. The appellate judgment also indicated that the request for confirmation could be rejected under section 40(4)(c) of the Act. This order was pronounced on February 4 1953.

Subsequently, the appellant filed a revisional application before the Custodian‑General, who exercised his revisional jurisdiction. The Custodian‑General re‑examined the matter afresh and agreed with the appellate authority’s assessment that, although valuable consideration had been paid, the transaction could not be said to have been concluded in good faith. In reaching this conclusion, the Custodian‑General placed reliance on the vendor’s conduct, the haste with which the sale was attempted, and the anxiety expressed by the vendor in his July 4 1949 letter to Mohideen. The Custodian‑General determined that the vendor sought to evade the impending extension of the evacuee law to Madras, and that this intention demonstrated a lack of good faith on the vendor’s part. Accordingly, the revisional application filed by the appellant was dismissed on July 4 1954. The Custodian‑General held that the appellant’s case fell within the ambit of section 40(4)(a) of the Act and therefore did not consider the applicability of section 40(4)(c). The Court further observed that when a transaction is tainted by an absence of good faith either on the part of the vendor or the vendee, its confirmation may properly be rejected under section 40(4)(a); thus, good faith is required from both parties for a transaction to be confirmed under the provisions of the Act.

In this case the Court observed that the provisions of section 40(4)(a) are considerably more rigorous and stringent than those of section 53(1) of the Transfer of Property Act. While the latter provision, which deals with fraudulent transfers, expressly protects the rights of a transferee who acts in good faith and provides consideration, such protection does not arise under section 40(4)(a). Consequently, the fact that the appellant paid valuable consideration for the transaction and is not shown to have acted otherwise than in good faith does not, by itself, justify a claim for confirmation of the transaction if it is established that the vendor did not act in good faith when entering into the transaction. The payment of consideration and the appellant’s good‑faith conduct may be relevant to assessing her own character in relation to the deal, but those factors are not relevant or material to determining the vendor’s conduct concerning the transfer. This position was not seriously disputed before the Court.

The counsel for the appellant argued that, in assessing the vendor’s good faith, it was necessary to consider that at the relevant time of the negotiations the evacuee law had not yet been applied to Madras, and therefore evacuees such as the appellant’s vendor were free to deal with their properties as they chose. He further contended that, even where the evacuee law applied, Government policy was to confirm transfers made by Muslim evacuees in favour of Indian nationals unless a certificate signed by the prescribed income‑tax authority confirmed that the transferor had settled all taxes due, or had made satisfactory arrangements for payment, and unless the transferor had no outstanding dues in the Custodian’s register or unchallenged third‑party claims. This argument was based on a copy of a press note alleged to have been issued by the Ministry of Rehabilitation on 13 May 1949. On the other side, the learned Additional Solicitor‑General relied on a copy of a circular issued by the Government of India on 9 March 1950, which stated that the instructions issued by the Government were subject to the requirements of section 38(4) of the Central Ordinance No. XXVII of 1949. In other words, irrespective of the nature of the circulars and directions, the appropriate authorities administering the evacuee law had to decide matters brought before them under the applicable statutory provisions. The Court was of the view that the argument that, even where the evacuee law applied, confirmation of sale transactions was automatically effected subject to the two conditions specified in the press note, could not be given much weight.

In this case, the Court observed that where the evacuee law applied, the confirmation of sale transactions was intended to occur automatically, provided that the two conditions set out in the press note were satisfied. The Court therefore assumed that the question of confirming such transactions had to be, and indeed was, dealt with by the appropriate authorities under the statutory provisions that were in force at the relevant time. The Court, however, noted that no evacuee law had been extended to Madras at the time the impugned transaction was completed. This circumstance raised the issue of whether a transaction entered into deliberately and consciously with the purpose of evading the application of the evacuee law—anticipating that the law would soon be extended to Madras—would attract the provisions of section 40(4)(a) of the Act. The respondent had answered this question affirmatively, and counsel for the petitioner, Mr. Sastri, contended that such a conclusion was erroneous in law. Mr. Sastri argued that the term “good faith” in section 40(4)(a) should be interpreted in the sense given to it by section 3, subsection (22) of the General Clauses Act, 1897, which states that an act is deemed to be done in good faith if it is performed honestly, irrespective of negligence. He maintained that the vendor could not be said to have acted dishonestly because no evacuee law applied to Madras at the time, and that an intention to avoid a law that might later apply to Madras did not introduce dishonesty into the vendor’s conduct. The Court rejected this argument, observing that section 3 of the General Clauses Act itself provides that its definitions apply “unless there is anything repugnant in the subject or context.” Consequently, it would not be unreasonable to hold that the meaning of “good faith” depends substantially on the statutory context in which it appears. To determine the meaning of the expression in section 40(4)(a), the Court said it was essential to consider the scope and effect of the main provisions of section 40(1). Section 40(1) provides, inter alia, that no transfer made after 14 August 1947 shall be effective in conferring any rights on the parties if, at any time after the transfer, the transferor becomes an evacuee within the meaning of section 2, or the property is declared or notified as evacuee property, unless the transfer is confirmed by the Custodian in accordance with the Act. This makes clear that all transfers made after 14 August 1947 are subject to the provisions of section 40, and that the definition of “good faith” in section 40(4)(a) must be read in light of this overarching statutory scheme.

In this case the Court explained that every transfer of property that occurred after the fourteenth day of August 1947 but before the seventh day of May 1954 fell within the operation of the statutory provision, and that consequently a very large number of transfers were affected during a period when no evacuee legislation had yet been applied to them. By reading section 40(1) together with section 40(4) it became clear that such transfers would be recognised as valid only if they were subsequently confirmed under the mechanism provided in section 40(4). The Court observed that a transfer made in the prohibited period might nevertheless have been entered into in good faith or for valuable consideration and might not attract any of the sub‑clauses (a), (b) or (c) of section 40(4). In such circumstances the mere fact that the transfer occurred during the prohibited period would not automatically render it void; instead the Custodian could be required to confirm the transaction. However, where a transfer fell within the ambit of sub‑clause 40(4)(a), for example because it was not made in good faith or for valuable consideration, the Court held that it could not be affirmed and would remain inoperative. This analysis, the Court said, demonstrated that the principal purpose of the Act was to preserve the property of those persons who had migrated to Pakistan until the Government of India could reach an understanding with the Government of Pakistan regarding the adjustment of claims by Indian evacuees concerning the properties they had left in Pakistan. The intended scheme was that the two governments would agree on the valuation of such evacuee properties, that any difference in valuation would be amicably settled between them, and that, after such settlement, the evacuees would be compensated for the loss of their properties in the respective countries. While the Court noted that the intended compensation scheme had not ultimately succeeded, it affirmed that the policy and object of the Act were clear and must be kept in mind when construing the term “good faith” in the main provision of section 40(1). Section 40(4) enumerated three categories of transactions that might not be confirmed: clause (a) covered transactions not entered into in good faith or for valuable consideration; clause (b) covered transactions prohibited by any law then in force; and clause (c) covered transactions that might not be confirmed for any other reason. The Court therefore concluded that the reach of these three clauses was very broad, encompassing not only transactions prohibited by law but also those lacking good faith or valuable consideration. Finally, the Court observed that if the test laid down in section 3(22) of the General Clauses Act, as interpreted by the learned counsel, were applicable, a substantial number of transactions might have to be confirmed even though they were entered into during the prohibited period.

In this case the Court observed that the transactions under consideration had been entered into deliberately with the purpose of evading the provisions of section 40(1). The Court held that the fact that the evacuee law had not yet been extended to Madras at the relevant time was not a decisive factor. It was well known that the law was being extended from province to province as circumstances required, and a letter written by the vendor to Mohideen demonstrated that the vendor was aware of this progressive extension. The Court noted that the historical development of evacuee laws in several states, as well as legislation enacted by the Central Government and by the legislatures of India and Pakistan, showed a concerted effort to confront an unprecedented problem. Those statutes made it clear to evacuees of both countries that the two governments were adopting legislative measures intended to protect evacuee property and to prevent its transfer. Consequently, the Court concluded that if a vendor disposed of his property not out of any genuine necessity or legitimate purpose, but solely to convert it into cash and move it to Pakistan, such a sale was clearly intended to defeat the provisions of the Act, which the vendor knew would soon apply to Madras. In that circumstance it would be difficult to hold that the vendor acted honestly within the meaning of section 40(4)(a). The Court stated that an intention to defeat the provisions of the Act could not be described as honest. Moreover, if a transaction undertaken with such an intention were nevertheless upheld as having been entered into in good faith, many similar transactions could escape the operation of section 40(1), thereby frustrating the purpose of the legislation. The Court emphasized that although the provisions of section 40(1) are drastic, they were deliberately made retrospective, a fact that underscores the aim and object of the Act. To ignore this aim and object while construing the expression “good faith” in section 40(4)(a) would be unreasonable. Accordingly, the Court held that, having regard to the emergency purpose of the legislation, the expression “good faith” in section 40(4)(a) had been properly interpreted by the respondent when the respondent determined that a deliberate intention to defeat the anticipated application of the evacuee law brought the transfer within the mischief of section 40(4)(a). As a result, the appeal was dismissed with costs, and the appeal was ultimately dismissed.